Pass the cornbread and dump the renewable fuel standard

Smell that cornbread? It is emanating from the tailpipe of almost every vehicle on the road. Well, not really, but it’s the thought that counts. As a result of the Energy Independence and Security Act of 2007 and its accompanying Renewable Fuel Standard (RFS), American gasoline and diesel suppliers are required to incorporate 16.55 billion gallons of renewable fuel in their product in 2013. From this number, 13.8 billion gallons will be distilled from corn into ethanol and blended in gasoline. The corn required for this effort comprises 40 percent of U.S corn production. The RFS does not live up to its justifications and should be repealed immediately.[1]

The primary arguments made by proponents of the RFS include, ensuring US energy security, stimulating the rural economy and reducing greenhouse gasses to decelerate climate change. They also claim that it promotes alternative energy by reducing investment risk in biofuels. None of these contentions hold any water under scrutiny.

How does replacing 7 percent in energy equivalents of gasoline translate to energy security? It does not and moreover, it does not take into effect all the “dirty” energy required to produce fertilizers, operate farm equipment, convert corn to ethanol and transport the corn and ethanol. This energy tradeoff in itself diminishes any benefit of the mandate. Furthermore, by 2022 the RFS requirement more than doubles to 36 billion gallons making the import of biofuels a high probability.

Ethanol production certainly boosts farm incomes and the rural economy. If you grow corn, that is. Animal producers and consumers take it on the chin with high corn prices due to the increased demand. It is in effect an indirect subsidy to the ethanol industry paid for by anyone who buys food. The direct ethanol subsidy may have ended on Dec. 31st but the public continues to pay for this policy at the grocery store.

Most people are concerned with climate change with good reason. Replacing a small percentage of hydrocarbons with a fuel that delivers a much smaller net percentage of carbon free energy is a symbolic gesture. This might not be a bad idea if it were not so economically and environmentally unsound. Corn is now being produced in dryer lands less conducive to the thirsty corn plant. Irrigation is required for this type of production. The dwindling water tables in areas like eastern Colorado cannot support this for long. In the 1930’s a similar land rush for wheat production created a little event called the Dust Bowl.

The RFS certainly stimulated investment in ethanol production; in fact, it created a whole new cottage industry. Having the public help foot the startup bill never hurts an infant industry. However, when the government arbitrarily picks a winner, other possibly superior alternative energy sources are ignored. Yes, the lofty status given to biofuels certainly brought investment dollars, but those very investment dollars were also redirected away from any competing alternatives. Who is to know what innovations may have been delayed or stunted by this interference in the market?

Finally, the current secretary of Agriculture has recently been claiming that the presence of ethanol reduced the price of gasoline by around a dollar a gallon in 2010 and 2011. This is the result of some amazing statistical leaps made by the Renewable Fuels Association. Their researchers claim that increased ethanol production is directly correlated with a decrease in the price spread of gasoline and crude oil. It also correlates with a lot of other unrelated events. There may be correlation but this does not mean causation.

The real fact is that speculation in renewable identification numbers (RIN) are threatening to cause gasoline shortages and thereby increasing the price of gas at the pump. RIN’s are the tradeable “green energy” credits that identify each batch of ethanol produced. These credits can be purchased by producers in lieu of ethanol. The price of these credits has increased by twenty fold since the beginning of the year due to fears that they will run out by 2014. This makes it more economical to reduce imports and increase exports of finished petrol to avoid the mandate.

The RFS was a bad idea at its inception and a worse idea now. The benefits, if any, are not worth the cost. Let’s pass the cornbread and get rid of the renewable fuel standard.